The Podcast Where Nasir Pasha and Matt Staub cover business in the news with their legal twist and answer business legal questions that you the listener can send it to info@legallysoundsmartbusiness.com.

Full Podcast Transcript

NASIR: That’s right.
We practice business law throughout the United States. Actually, no, only four states, right? California, Illinois, Texas, and New York. I have them memorized.

MATT: Depends how you look at it. I mean, it’s really technically coast to coast.

NASIR: Oh, absolutely, it’s coast to coast.
Either way, welcome to our show today. We are covering Airbnb and this is where we take that business legal news – or I should say “business news” – and add our legal twist. The legal twist we’re adding today is basically Airbnb and, I should say, more specifically their host, are being accused of racism. What do you think about that?

MATT: I have the wrong notes. I have this is Brad Pitt, Angeline Jolie. Must be my other podcast.

NASIR: Yeah, that’s afterwards, right?

MATT: Okay. All right, very good.

NASIR: Stay tuned for that.

MATT: I found the right one.

NASIR: Okay, good.

MATT: Airbnb, off the top, let me just get through a little bit of what’s going on. You kind of did the nice little lead in here but let’s run through it a little bit here.
Airbnb, for those of you who don’t know, it’s an online way to essentially either find a place to stay from anywhere from one night to more or, if you have your own place, you can do the same thing – you can rent out your place for a night. Have you ever used it before?

NASIR: I’ve used it internationally but, domestically – when I say “domestically” I mean within a mile of my house – I haven’t used it.

MATT: Yeah, same with me. Like I said, it’s a pretty nice service, especially for people if you have a weekend, you’re going for a wedding, something like that. Internationally, it’s very good as well. I think it’s a little bit more… I should say more accepted but it seems like it’s more prevalent there.

NASIR: It seems ideal, especially if you want a house or something, when you’re in a big group, that seems like a good choice.

MATT: Right.

NASIR: Certain locations, the hotel choices aren’t that great or you want a different experience than the rather routine tourist location.

MATT: As our assistant put it, you have a place with a little bit more character. I think that was well-put by him.
They have this setup where it’s essentially a platform for people to rent their spaces out and also rent spaces. Pretty much, I guess since the beginning, there’s been some talks of racism that have occurred. Really, what it is is a situation – I’ll kind of boil it down, how it works.
You do your search, you see this site, and you see what places are available within the area you’ve searched, and then you do a request to rent that space if it’s open for those days. At that point, the owner can either accept that or reject it or do some sort of back and forth what-have-you. I mean, it’s not a negotiation per se but it’s just, “Oh, sorry, this place is actually rented out, I forgot to mark it.” Something to that effect.
What’s been happening is there’s been requests by certain demographics of people that have raised some eyebrows. Let me bring up one example in particular. This is a man, Rohan Gilkes – this is on Medium.com, I actually checked out the little story, it’s pretty funny – well, not the racism part but some of the other stuff, we’ll post it.
What happened with him was he’s a black man, wanted to visit a friend in Idaho. She mentioned there was a great cabin on Airbnb close to her. He thought, “Perfect! I will look at that space.” He found it, requested to stay there for five days. Like I said, when that happens, the owner of the place sees his profile and has his photo on it which, at that point, the owners could see that it was a black male.
They wrote back saying, “Oh, sorry, we’re actually planning on coming up that weekend, using the space that weekend, it’s no longer available.” No problem for Rohan as he wrote back, “Oh, my schedule is much more flexible.” He gave a wide range of dates.

NASIR: Any day in 2015, I’m available.

MATT: Yeah, the Michael Scott, “I can take you up on your offer to fly to wherever that was.”

NASIR: Florida.

MATT: Any day.
At that point, he was denied all together and he realized, “Oh, it’s actually not just booked for that weekend. It’s ‘booked up’ because I’m a black male and I’m being discriminated against.”

NASIR: Well, not quite. It’s booked for you, basically. Anyone else could.
The way that he was able to show that is because he had his friend – who was white – attempt to book the exact same date and he did and it was approved without any objection. Of course, it’s like, “What is the alternative explanation? Did it all of a sudden become available?”
In its isolation – and this kind of goes to speak what’s going on in the country, in fact, we’re recording this the day after all those riots in Charlotte and protests in Charlotte – if it was just an isolated incident, then perhaps there could be some reasonable explanation or perhaps it is just an isolated incident. But then, these other anecdotal stories – I guess that’s redundant, “anecdotal stories” – you get anecdotes from people kind of describing their experiences similarly. It’s like, “Okay, wait a minute, maybe there’s something going on here.” In fact, there was a study done by Harvard Business School in 2015 and they found that Airbnb hosts were 16 percent less likely to accept fictional guests that have African American sounding names than guests with “white sounding names” even when they made profiles otherwise identical. That’s pretty interesting.

MATT: Yeah, it’s pretty disappointing, too.

NASIR: Yeah, if you’re anti-racism, that’s true.

MATT: And so, like you said, we have this study from Harvard Business School. Rohan isn’t the only person that this has happened to. There’s actually a class action suit that we’ll get into a little bit more but it seems to be an ongoing thing all throughout the country in that, if you’re black, it’s being discriminated against in terms of… well, I should use the term “discriminated against” loosely because that’s another issue, too – whether this is, from a legal perspective, discrimination.

NASIR: Yeah.

MATT: From a social perspective, yeah, definitely. But, from a legal perspective, whether it’s discrimination.

NASIR: You’re right.
And so, if you were to ask most people on the street – not attorneys or, frankly, even attorneys – and you ask them, “Is it legal for an Airbnb host to discriminate who they accept in their home based upon the color of their skin?” and most people are going to say the answer is no – or I should say the answer is that it is illegal.
But the actual answer is that it’s probably legal. I only say “probably” in there just to cover myself just because who knows? Of course, everyone’s very familiar with the Civil Rights Act of 1964. It is a huge legislation that changed the country and it came at a time when there was a tremendous amount of change and, of course, it’s the Civil Rights movement. With this law, it prohibited discrimination based upon color, race, religion, and different things of that nature. Actually, race, color, religion, and national origin.
In there, it gave some exceptions and the exceptions were – or I should say “where it applied to” – is only places of public accommodation. It specified within the law what are places of public accommodation. And so, think about restaurants, hotels, theatres, or any businesses whose operates affect interstate commerce.
Now, here’s the deal. There is an exception to it. I don’t know if you know about this, Matt, but this exception was called Mrs. Murphy’s Exception. Did you hear about that or not?

MATT: No, I didn’t know.

NASIR: It’s interesting. The reason it’s called Mrs. Murphy’s Exception, even before 1964, the Civil Rights Act of 1964 was passed, some senator or whatever debating in Congress was talking about giving an exception to, okay, the Hiltons of the world, of course, it’s a public accommodation. You have a lot of hotel rooms. But what about the Mrs. Murphys of the world who have a home, have three or four bedrooms and they want to rent out rooms as like a bed and breakfast or so forth? They should be restricted by this particular type of law and that’s what they put in.
Basically, if you’re established and located within a building which contains not more than five rooms for rent or hire and which is actually occupied by the proprietor of such establishment as his or her residence, then this Civil Rights Act of 1964 does not apply.

MATT: Was that an “and” or an “or”?

NASIR: And.

MATT: Okay.

NASIR: It’s five rooms or less and which is actually occupied by the proprietor.

MATT: So, that’s what makes this situation peculiar.
If I had to guess, most of the time, the spaces that are going to be rented out and going to be less than five rooms – at least in my experience, looking, a lot of them have been studios or lofts or pretty small places.

NASIR: Even if it’s more than five rooms, technically, if you’re renting out the whole entire house – well, anyway, I don’t even want to get in the nuances of it.

MATT: I sidestepped that issue and then you tried to bring it back. That’s for our supplemental podcast, the addendum to Legally Sound.
Yeah, and we come to the issue of whether the person lives on the property. There’s a difference obviously between a rental, a strictly rental, or, you know, I know people that use Airbnb here in San Diego and it’s a situation where they live there most of the time but then they aren’t there – let’s say they leave somewhere for a week and they put their space up on Airbnb. It’s obviously something that was not thought of when this law was created and it of course is – like a lot of the sharing community laws – this hasn’t been adapted to fit the sharing community.

NASIR: The thing is, let’s assume for a moment because I don’t necessarily agree that Mrs. Murphy’s Exception should apply but just understand what the argument is behind it.
The Constitutional protection – you know, the equal protection – also have to be balanced between your First Amendment rights and the idea is that – this is the argument – the First Amendment also provides your right to associate with whom you wish but also not to associate. The idea is that, okay, if you’re not really in the business of renting out room, this is just kind of your residence, then you should be able to choose, in theory, who you rent your room to. But I think everyone kind of understands that there’s still something wrong with that even if it is just your house and you want to choose who you rent out to. But shouldn’t it be illegal if it’s because of race? I mean, I understand if it’s for some other reason – maybe they’re college kids and I don’t know.

MATT: Yeah, that’s age.

NASIR: But, still, you usually can’t discriminate against older people.

MATT: If it’s something based on previous bad reviews.

NASIR: Precisely – yeah, they leave the place a mess or what-have-you.
Here, like you said, in the sharing economy, now all of a sudden it’s a little bit different where we’re not talking about just one host. We’re talking about a whole network of hosts. How does Airbnb come into play and what they have done is pretty interesting.

MATT: Yeah, and that’s the point I was just going to make. You know, we keep talking, we keep throwing around the word “discrimination” – whether it applies or not under Title II of the Civil Rights Act – but that’s strictly – I mean, not strictly – what we’re talking about is the actual host – the person that owns the property.
Airbnb, as I mentioned before, is really just a platform.

NASIR: That’s right.

MATT: I mean, there’s no way they can screen every single potential transaction that might occur and determine whether there’s discrimination although we’ll get into what they’re trying to do and they’re trying to do more of that but it’s not something where everything has to be run through them every time somebody wants to rent a place.

NASIR: That’s right.

MATT: Let me step back one second. I mentioned the class action lawsuit earlier as well.

NASIR: Yeah, I wasn’t aware of that. What’s going on there?

MATT: This class action lawsuit that was filed against Airbnb back in May of this year, it’s alleging similar things that we’re discussing but under the Civil Rights Act of 1964 and also 1981 and then Fair Housing Act – all kind of boiling down to this alleged discrimination that’s been going on against people of a certain race.

NASIR: Even though we kind of just said there’s an exception to this act and so forth, but it’s definitely worth a try in the sense that this area of law, there are some nuances to it, especially when it’s considered a public accommodation, there have been exceptions made in law and the Civil Rights Act of 1964 isn’t the only piece of legislation that may have protections here against this kind of discrimination and I think you even mentioned the Fair Employment and Housing Act as well. That may have some implications.
I’d like to see this go forward because it looks like this representative person that filed, it’s the exact same story that we read with Rohan Gilkes.

MATT: Yeah, but here’s the thing… I’m not sure we’ll get too much out of it.
The response by Airbnb was it updated its terms of service, requiring people, if they want to use the site from there on out, waiving their rights to a class action lawsuit amongst other joining parties amongst other things, basically trying to kick out this possibility of this sort of lawsuit moving forward.
To me, the reason behind this is, in order to show discrimination, you have to show some sort of pattern that’s going on. I think it’s a lot easier to show this pattern of discriminating acts with a group of people than it is just one person.

NASIR: Of course, yeah.
It would be hard to show culpability from Airbnb as well as we’ve already discussed as far as their responsibility. It looks like Airbnb is kind of opposing this lawsuit from a procedural perspective which is I think fine. At the same time, it seems like Airbnb, regardless of whether they’re legally responsible, they seem to be taking the moral responsibility as well by making some serious changes to how they operate their business.

MATT: Yeah, exactly.
Outside of the courtroom, it’s really being proactive about these sort of issues that have been raised to the forefront and it’s all about this community commitment that it’s trying to implement and there’s all these different components to it. We’ll touch on some of these but, really, it’s stepping up and trying to obviously stop the discrimination that’s going on amongst the users of Airbnb, but it’s faced with a problem and I think this is how we’re going to apply it to other businesses is how exactly do you go about this issue when it’s not even you or your employees are the ones that are doing these discriminating acts but you still want to fix the problem so that the consumers don’t blame you or stop using you as a service?

NASIR: Sure. Unfortunately, lots of people listening to this podcast aren’t going to know the sum of the efforts that Airbnb are making but I think it’s worth mentioning.
For example, in June, the company started working with a person named Laura Murphy. Now, she is the former head of the ACLU’s DC office. As you may or may not know, ACLU is a legal advocate for minorities and any kind of discrimination of these sorts among other things as well. I’m just kind of summarizing it there. Even within Laura Murphy’s 32-page report, she even admitted that she was skeptical that even if Airbnb makes certain changes, they’re not going to be able to overcome this widespread bias that may occur just in the nature of what’s going on with our country, but they are making some changes.
For example, they made the images of the profile pictures smaller.

MATT: Yeah, that was one thing, but let me just put this in perspective really quick on how difficult this is and I think this is one of her reasons for concern.
Airbnb’s last numbers I saw is over 60 million users worldwide; 650,000 people hosting with a total of 2 million listings. Obviously, they’re not going to be able to oversee all of that. That’s an insane amount. For comparison purposes, the Hilton has been in business 93 years; 88 different countries with 610,000 rooms. In the last six years, Airbnb, 192 countries; 650,000 hosts.

NASIR: That’s crazy.

MATT: Staggering numbers for such a young company. How do you even begin to oversee something like that? It all starts with this sort of putting these new policies and procedures in place and then trying to follow them as best as you can. But, yeah, the photo thing was part of it. Telling people one of the options to even get rid of the photos, I know that Airbnb likes to have a community feel, almost forming relationships with the community so they still like to keep the idea of photos. To me, that’s a safety issue as well, I would think.

NASIR: You’re right. There is some comfort of knowing that it’s an actual person.

MATT: I guess people aren’t always there at their place necessarily but, if you’re at the property and someone shows up to rent and it doesn’t look like the photo, that would be a concern to me. I don’t know

NASIR: Also, Airbnb has required its hosts to sign a new community commitment which, of course, includes the newly revamped discrimination policy which I think they had before. It’d be interesting to see what happens if a host blatantly breaches this policy. What is Airbnb going to do about it? Are they just going to terminate their right to host or are they going to actually file a lawsuit or some kind of affirmative action? That would be interesting to see and really see how that turns out.

MATT: Yeah.
To me, looking through this – and we’ll post a link and people can read the full report – the biggest things I think are going to help them take a step in changing this is this feature and I believe they’re trying to get over a million people – or maybe they already have – to do it and it’s this instant booking. There’s not even the process of the opportunity to have somebody request and you deny it if you see that the person is a certain race you don’t like. This is an instant booking that you don’t go back. Oh, the goal is to make one million listings bookable via instant book, January 17. It’s a very new feature. I think that’ll definitely help.

NASIR: That would, in theory, solve that issue. In the past, you touched on at the beginning that right now you basically request a booking and the other party has to accept it but, I think, because of the lack of cooperation between hosts and the technology, the instant booking hasn’t been available in finding a way to get a host to actually stick to it because, as you know, if you’re hosting, you put your property or your room on Airbnb, you don’t know when it’s going to be available and so you just make it available all the time and things come up and being able to greet the person when they come and all that and there’s some logistical issues. It’s not like you’re literally running a hotel. The instant booking, if they’re able to do that, it’d be a huge help with that.

MATT: Yeah. Another thing, too, I think they’ve gone about it the right way here in trying to shoulder as much responsibility as possible without any sort of admissions or future admissions of guilt and kind of this open-door philosophy they’re having and, if a guest isn’t able to book a listing because they’ve been discriminated against, Airbnb will ensure the guest finds a place to stay. Obviously, that’s vague, but it does seem like they’re trying to take some of the blame for what happened and put the guest in the best spot as possible in order to get a spot to stay. I think that’s the right way to go about it.

NASIR: Yeah, and I bet you, you know how we covered – in fact, in our last episode, we talked about how Amazon sellers felt that they were being kind of pushed over because they would lose their seller’s account. One of the reasons – of many – why they would lose their seller’s account is because of complaints from customers. Now, imagine now you have complaints from customers because they feel that they’ve been discriminated against because of a certain host, we can easily see Airbnb hosts having the same kind of reaction – that, “Hey, because some customer complained, now I can’t rent out my room, I’ve lost thousands of dollars.” She’s covering the other side of the story a little bit.

MATT: This is very, very new. Some of these things haven’t even been rolled out yet – just part of their plan that they’ve put in place – so we’ll have to see if it actually works or not. You know, that’s kind of what Airbnb has done or plans to do. But let’s say if you’re a business, if your business has grown as fast as Airbnb, things are probably doing pretty well. But, for the ones that haven’t, you know, I guess it can work both ways. In a situation where it’s someone with one of your employees that’s discriminating against customers, obviously, that’s going to be worse or you being accused of discrimination, you know, something that might not necessarily be the business’s fault, you know, what’s the contingency plan that goes into place from a PR perspective?

NASIR: Airbnb is a good model to follow. They investigated. Keep in mind, I understand that some of it may be PR and some of it may be show. You know, here, we’re talking about it, giving them good PR. But, in reality, the things that they’ve done, I’m not saying that you need to hire the former head of the ACLU in the DC office but that type of investigation and really determining and keeping an open mind that, okay, is there a discrimination going on? Is my employee – even though I don’t believe he or she is racist – could there be an implication that what he or she has done could give rise to and the impression that they are discriminating because of race or some other protected class. And so, being able to investigate it openly and then react very fast to those issues is going to be very important.

MATT: Step 1 – prevention. Have the policies in place. You don’t want a situation where you’re going to have to be reacting to it. There’s anti-discrimination policies you can put in employee handbooks and things like that.
Let’s assume that there was nothing in place. It doesn’t matter – let’s assume there’s something in place and it wasn’t followed. On the reaction side of things, how to go about it.

NASIR: For example, you want to take away discretionary actions sometimes if you can. Back in the Airbnb, when the host has a choice whether to rent out the room to somebody after they booked, that gives rise to the possibility. The same way, if you have an employee that has discretion to give discounts here and there and only gives discounts to whites but not blacks or set their own prices, then that can be a problem and taking away that discretionary decision-making is one of many different ways to prevent that.

MATT: Like the bouncer who charged a cover for some people.

NASIR: Here in Houston.

MATT: And didn’t for others.

NASIR: Precisely, exactly.

MATT: I assume that business is no longer around.

NASIR: I assume so. I think our podcast itself put it out of business but we’ll have to look.

MATT: I just remember that response wasn’t terrific. It wasn’t a 32-page report on how it was going to change things. But, yeah, that’s going to be nice or that’s going to be a key component – removing that discretionary piece from the employee standpoint.
I think another thing they could do is kind of what Airbnb did with what they call the open-door policy. I think, as a business owner, keeping an open mind about it as well, I think you’ve got to take every complaint seriously – or every allegation seriously – look into it, devote the proper amount of time into looking into it, and obviously if you’re discovering, with your due diligence, you discover that it’s a bigger issue or even an issue, then you obviously need to take the proper actions at that point to rectify is.

NASIR: Be very careful. We’re talking about how to react but be very careful about retaliating against someone that is bringing up this complaint. Obviously, it’d be someone internally. Retaliation can come in many forms. It could come in the form of, besides terminating, not giving them a promotion or giving them a demotion or what-have-you, changing even their responsibilities could be termed as a retaliatory act.

MATT: Which is always a tough position to be in. Even if you do things right, you hope those issues don’t come up.
Let me circle back around. We’re talking more from the reactionary side but the policies need to be in place yesterday is basically what I’m trying to say.

NASIR: Or two days ago.

MATT: Yeah, or two days ago. Even if it is a situation where you are reacting to it and their stuff was in place, now is the time. Better late than never, I guess. How many clichés can I put in this sentence? But, yeah, that’s the point – get something in place.

NASIR: One thing that I’ve seen before – again, we’ve already mentioned this taking it seriously – I’ve seen people and we’ve seen businesses complain because they felt that the shop owner was being racist and they’ll leave a review or what-have-you. It’s very likely that there was no racial intent in the action but just kind of putting it off as if “no, I wasn’t being racist” and that’s it and then moving on with your life is probably not the best way to handle it. This is just kind of common sense as far as the customer always being right and kind of be over the top because not only will it cost you money just in defending the legal issues, the PR alone – and we’ve seen it many times, we’ve covered it on the show ourselves – the PR alone, the backlash that can occur with any of these businesses that are accused of these things can be a killer and it has killed businesses over and over again.

MATT: You took the words out of my mouth. The customer’s always right. I mean, if you’re a business owner and you haven’t realized that sometimes you have to do things to prevent that PR nightmare then I guess I’m surprised your business has lasted that long or you just offer such an exquisite service or product that you could just do whatever you want and you’re still going to make money. There’s probably instance of that as well.

NASIR: Like, if you’re a drug dealer.

MATT: Well, no, I think it’s more if you’re a monopoly then you’re probably fine. But there’s very few of those.

NASIR: I’m just trying to think, is it illegal for a drug dealer to discriminate? I think it’s actually illegal. What do you think? Public accommodation?

MATT: Taking out the public accommodation part, you’re doing an illegal business and you’re acting illegally, cancel each other out, net legal.

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A podcast covering business in the news with a legal twist by Pasha Law PC

Legally Sound | Smart Business covers the top business stories with a legal twist. Hosted by attorneys Nasir N. Pasha and Matt Staub of Pasha Law, Legally Sound | Smart Business is a podcast geared towards small business owners.

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